Free Money Finance

Help a Reader: House Trouble

2009-07-09T15:45:00-04:00

Here's a question left recently by a reader:

My husband and I have retired in the last year. We have built a new house and have a large mortgage. Needless to say, our old financial advisor did not advise about saving for the house and we started building when the "recession" hit. We lost $60,000 in our investments and we had planned to put $100,000 down and do most of the work ourselves. We did a lot of the work ourselves, but we had to hire a contractor or we couldn't get a loan to finish the house.

Our current financial advisor has most of our money tied up in annuities.

How can we get our house paid off early? We have a 30 year mortgage. And are annuities the right place for our money?

Details are kinda sketchy and the ones that do exist don't sound good. Got any suggestions for her other than "cut spending" and put that towards the debt?

Three Things I Think About When I Think About Bernie Madoff

2009-07-09T11:15:00-04:00

The following is a guest post from Peter Passell, author of Where to Put Your Money NOW: How to Make Super-Safe Investments and Secure Your Future.

The greatest financial fraudster of all time has gone to the slammer, and isn't scheduled to be released until he reaches the age of 221. That's OK by me. Bernie Madoff, after all, was no Robin Hood. Sure, he stole from the rich (the struggling middle-class need not apply). But he stole from the poor, too, slurping up billions from the endowments of charities. And apparently the only beneficiaries of this vast involuntary transfer of wealth were family members struggling to maintain the lifestyles of the rich and infamous.

End of story? Not quite. While it's hard to imagine that anyone else is running a Ponzi scheme on this scale, I would argue the human weaknesses that made it possible for Madoff to keep the scam going for decades -- greed, gullibility, laziness, money-driven politics -- explain why most investors, most of the time get less than their money's worth. At very least, then, the Madoff fiasco should remind us all of some unhappy truths about investing in America.

Government regulation is no substitute for personal vigilance. If you rob a bank, the chances are excellent you'll be caught -- and quickly. Indeed, the clearance rate on bank heists is so high that only unshakably optimistic crooks even try. How, then, was it possible for Madoff to get away with so much bigger a crime and for so long? One important reason is that modern business depends more on cultural constraints (as in, "I'm not a thief") than on regulation (as in, "I'd never get away with the theft") to keep it honest. And, unfortunately, the investment business attracts lots of folks who aren't deterred by the injunctions they heard in Sunday school.

But surely, regulators will now be more vigilant. Don't bet on it. The sort of regulation that could reliably deter the bad guys on Wall Street would be immensely intrusive and costly. And when push comes to shove, it's not likely that either Congress, or regulators appointed with the tacit approval of big political campaign contributors, will have the stomach do what's necessary.

The bottom line: You don't always get what you pay for. If you want to invest in anything other than government-guaranteed CDs and bonds, you've got to stay on top of who's got your money and where.

If it's too good to be true, it isn't. Most investment scams are of the get-rich-quick variety -- as in "I'll double your money in three months." Madoff, by contrast, attracted big sums by offering something that seemed far more reasonable. No secret land deals in Wyoming for the former chairman of the NASDAQ stock exchange, no once-in-a-lifetime opportunities to profit from the coming boom in ruthenium (look it up, yourself . . . ). All he offered were 10-15 percent returns, year after year, regardless of the state of the stock market or the global economy.

You've got to give the devil his due here. The promise of low-double-digit profits without risk was just plausible enough to attract the sort of investment advisors who served clients by dressing well and mixing a terrific martini rather than by providing timely intelligence on matters financial. Meanwhile, Madoff was able to make the cash payouts needed to keep investors believing they were getting what they paid for as he was able to increase funds "under management" by a modest amount each year.

On closer look, though, the promise of a steady 10-15 percent was hardly more plausible than the promises of more conventional investment cons. For while plenty of investors do average annual returns in the low-double-digits, they only manage it by taking substantial risks. And the fact that Madoff never had a losing year should have been a dead giveaway.

How did he get away with it, then? Like all successful scammers, Madoff understood that almost everybody secretly feels entitled to something for nothing -- and many are ready to deny reality to get one. To paraphrase Groucho Marx: Who you gonna believe, me or your lying eyes?

The scandal isn't what's illegal, it's what's legal. Yes, I stole that line from the great pundit Michael Kinsley. And yes, what Madoff did was illegal. But his most excellent adventure should not be allowed to obscure the reality that the $50 billion or so that Madoff lost on behalf of clients over the last few decades was far less than the sums that the financial services industry takes from investors every year for nothing much in return!

How dare I, an economist and (within reason) a believer in free markets, make such an outrageous claim? Try this on for size: In 1997 the after-tax profits of financial services companies was roughly $100 billion (a record high to that date). Over the next ten years it averaged a bit more than $170 billion -- even after adjusting for inflation. So what did we get for the extra $70 billion annually? Wall Street sliced and diced a lot more "product," managing everything from a great wave of corporate mergers to the issuance of hundreds of trillions of dollars worth of old- and new-fangled financial derivatives.

But it's hard to see what extra investors got from the deal. And when you look closely, you can see what they didn't get. Corporations paid hefty fees for securities issues -- fees that never seem to go down in spite of what appears to be heavy competition for their business. Meanwhile fund investors paid humongous sums to shuffle assets in what economists call "zero-sum" games in which the gains of some came out of the pockets of others.

Bernie Madoff is gone, may he rest without peace. But the financial world that spawned Bernie is alive, and will soon be well enough to take your money with gusto.

My Jobs, Graduate School

2009-07-09T07:25:00-04:00

A few days ago I continued my career history by detailing the jobs I had while in college. Today I want to continue this series by sharing the jobs I held while in graduate school.

While I was getting my MBA, I had two jobs. The first was during the school year (both years). It was an assistantship where I ran the university movie theater as well as supervised some dances in the student union. I had to work EVERY Friday and Saturday night from 6 pm until 11 pm or so (sometimes later), but it paid all my tuition, room, and board (I think, but not sure on this one) as well as $300 a month (a fortune to me) and gave me some great work experience. Here's what I learned from the job:

Luck matters. Like the assistantship I had as an undergraduate, the people hiring for this assistantship wanted someone to make a longer than one year commitment. The previous assistantship holder was graduating with an MBA, he'd done a great job, and they wanted a two-year commitment from a new MBA student. I happened to fit the bill.
The interview is important. The one thing that sealed the deal for me was the interview. I hit it off with the hiring manager and a few days later I had an offer. It was the event that determined my future since I may not have attended that school (or maybe any school at all) without that assistantship.
You need to sacrifice for what you want. I was 22 years old and had to work EVERY Friday and Saturday night. Talk about a social life killer (though I could have gone out once I got off.) But I was thankful for the job and what it provided for me. Besides, I was driven like mad in grad school and a social life wasn't high on my priority list. In my mind, I left the school world and entered the career world when I graduated from my undergraduate school.
All jobs have perks. Despite the fact that I had to work every weekend, I had the weeks relatively free (simply had to pick up the movies and prep them for the weekend.) This allowed me to focus on my studies. Also, I could study while the movies were being shown. (BTW, I was ALWAYS studying in grad school and needed all the extra book time I could get.)

In the summer between my two years in grad school I got an internship in Indianapolis at a good-sized company. It was my first "real-world" job and I learned a lot from it including:

Working with my brain was well worth it. I made something like $2,500 a month -- A HUGE amount for me at that time. I knew what the average salaries were leaving grad school, but somehow they didn't really register until I saw that first check. I was rich! (Then, once I got my first job after school, I found out that lots of bill -- for things like housing -- come with the nice, new paycheck. Bummer.)
It's a different world from school. We learned one thing in school but in the real job world, many things worked completely differently. This is one of my biggest beefs with MBA programs -- they prepare you for a hypothetical world of business that does not exist. That's why, over time, the value of your business experience will trump the value of your education (it's more practical, relevant, and meaningful).
Politics is part of the workplace. Wow, this was an eye opener. I didn't expect Days of Our Lives to play out in the work world, but boy did it. It was like a soap opera combined with political intrigue. And since I was "only" an intern, I was confided in by everyone who wanted to tell their side of the story. Then again, since I was pretty green then, I'm sure I missed a lot of what was going on.
Business can be boring. I like working in the business field, but the company and the products bored me. I learned that I needed to find a good company with some products I could at least be generally interested in if I wanted to maintain my sanity.

So that's it -- we're now through with all my pre-college and college jobs. In the next post (in a few days), we'll start to tackle the "real" jobs I've held as my career starts and takes off.

Five Money Dilemmas and What I'd Do

2009-07-08T15:45:00-04:00

CNN Money recently told what they would do when presented with five money dilemmas. I thought I'd let you know my responses to these compared to Money's thoughts, so here goes:

Problem #1: Your investments are in the tank, your annual bonus is a thing of the past, and you need to cut back on expenses. Problem is, tightening your budget can create pain for someone else.

My response: If you cut back as far as you can and you still have to make painful cuts (in this case a housekeeper versus a home for your dad versus classes for your kid), I'd start by protecting my family first. I'd cut the housekeeper (why have one in the first place?). Next would be the special class for the kid. She can always get another one, but the last thing I'd do is move my dad out of his home simply to save myself some money. I would offer to have him live with me, but if he didn't want to do that, I'd try all I could to accommodate his request above all the others.

Money's response: They agreed with me about the family part, but they preferred the class for your kid over dad keeping his home.

Problem #2: So how do you respond when your neighbor says that his sales commissions are down 40% and he has to postpone removing his dead tree that's threatening to fall on your garage? Or when your brother tells you that he can't pay his share of the 50th-anniversary party you're giving your parents? You know he's strapped, but you think he could chip in if he tried.

My response: I have little sympathy for those who have a tough time telling a need versus a want (for example, cable TV is NOT a need.) If I felt they could cut a bit and make their commitment, I'd hold them to it. If I felt they couldn't, I'd probably give my neighbor some time but ask that he handle it within a period of time. For my brother, I'd probably pick up the tab.

Money's response: They say that if someone is in real trouble, then you should pay for it and asked to be reimbursed. That's a lot easier said than done IMO.

Problem #3: You're a manager at a company that's struggling, and you have to decide which employees to lay off. Some are single. Some have families to support. Some are healthy, while others have medical problems. Meanwhile, your longtime assistant tells you that she could lose her home if she doesn't get a bonus. You could go to bat for her, but it would mean that much less will be available for others.

My response: I've been here before -- having to fire people at a bad time for the company. Here's what I (and the rest of the company did): 1. Looked at the needs of the firm. 2) Looked at who was performing well and who could fulfill the needs of the company to give it a chance to thrive. 3) Those remaining were let go. Personal circumstances were not considered. It sounds very cold, but if you don't do it this way IMO, you risk the whole company going down and EVERYONE losing their jobs. Better to save the many, if possible.

Money's response: They pretty much agree with me.

Problem #4: Your job is far from secure, and you are doing your best to scrimp and save. But good friends are making that difficult. The folks with whom you and your family vacation every summer, for example, are balking at the much less expensive cabin you have proposed this year. And your college roommate, who was the best man at your wedding, now wants you to be the best man at his -- which takes place in Rome.

My response: No problem here. Level with them and move on. Tell them you're in a tough place financially and just can't swing it. If they're upset at you after knowing this, they aren't very good friends IMO.

Money's response: They generally agree, but suggest you that you should try and do all you can to make the "commitments" you have.

Problem #5: Thanks to decades of prudence, you're financially sound. But others in your life can't say the same. Your spendthrift son has lost his well-paying job and says he'll lose his Porsche if you don't take over the payments. And your best friend needs a loan to help with his daughter's tuition -- a loan you're uncertain he can repay.

My response: To son: sell the Porsche (and the tons of other trinkets he probably has), downsize your life, and consider it a lesson well-learned early on in life. To friend: Sorry, I don't loan money to friends. I might GIVE him some money (a couple thousand or so -- loaning money can kill a friendship), but that's it.

Money's response: On the same page with me.

How about you? Would you have approached these issues differently?

Four Ways LinkedIn Can Help Your Career

2009-07-08T11:15:00-04:00

The following is excerpted with permission from How to Succeed in Business Using LinkedIn: Making Connections and Capturing Opportunities on the World's #1 Business Networking Site by Eric Butow and Kathleen Taylor (AMACOM 2008). We've talked previously about the value of LinkedIn and this piece adds some meat to that discussion.

Promote Yourself

LinkedIn is designed for business professionals and business owners instead of for the general public. You establish yourself on LinkedIn by creating a profile that summarizes your professional and/or business accomplishments. Without a profile you can’t link to anyone else in LinkedIn, and no other LinkedIn users can learn more about you. So creating a profile is one of the first tasks you need to complete. For example, when I joined LinkedIn, I set up a profile for my business and linked the profile to several colleagues.

The text that you include in your profile is searchable. So, if you’re looking for work in a particular area, such as telecommunications, be sure to add this information in your profile. As an example, Penelope Trunk, a syndicated career columnist for The Boston Globe, who uses LinkedIn extensively to network with others, pointed out in her April 24, 2007, blog entry about 10 ways that journalists can use LinkedIn. A thoughtfully completed and properly linked profile is an excellent way of promoting yourself and/or your business.

Grow Your Network Fast

LinkedIn offers subscribers a remarkably fast way to grow their networks. When I joined LinkedIn, about 14 of my colleagues asked to link with me, and I asked to link with some of them. By degrees I expanded my link network to hundreds of LinkedIn members because my originally linked members have links to hundreds of other connections. And those hundreds of connections have thousands more. In a very short time you’ll have more connections than you ever thought possible. Fortunately, LinkedIn makes it easy to search for other LinkedIn members who share your interests, including, for example, the company you work for (or the company you worked for sometime in the hazy past), as well as for people you went to school with (in the even more hazier past).

Guy Kawasaki, former Apple evangelist, managing director of the venture capital firm Garage Technology Ventures, author, and LinkedIn user, offers a valuable tip. He notes in his January 4, 2007 blog that if you make your profile available to everyone and use your actual name for your public profile URL (also known as a Web site address), you make your profile information easier for search engines to index. This is especially true when people use Google to search for you because your site has a higher Google PageRank, that is, your profile comes up more quickly in search results when people search for your name, giving you more opportunities for people to network with you.

Get a Job, Man!

When a friend of mine told me recently that he was looking for a job, one of the first things I told him was to sign onto LinkedIn and let me know when he did, so that I could not only link to his site but also write a recommendation for him. When you write recommendations for other users, they appear in the users’ profiles so that others can read about how great your contacts are. Not only are other LinkedIn users searching for fellow users with similar interests, but recruiters and business owners also use LinkedIn to find great employees by posting job listings. And your LinkedIn home page shows you who’s hiring in your network.

In addition, as Guy Kawasaki notes in the same blog entry, LinkedIn also enables you to perform reverse checks on your prospective manager as well as the company you’re thinking of working for. You can use LinkedIn to contact people who have worked at the company, get feedback from them, and find out about the current rate of turnover.

Give and Get Inside Information

LinkedIn is also a great place for members to collaborate. You can question only the people in your network, or you can expand your search for information in LinkedIn Answers, which is a section for asking and answering questions at-large. You can ask a question in as many as 16 different forums, from issues about business administration to using LinkedIn. You also can participate in discussions and answer questions from other users.

What’s more, as Penelope Trunk notes (in the same blog entry), you can get ideas for topics and trends in your industry. For example, she notes that, if you look for information about the iPhone, you get some of the buzz about the product from other LinkedIn users. If you’re looking to work or start a business in a particular industry, Guy Kawasaki points out that you can use LinkedIn to find out who worked for your competitors and see who’s starting up businesses in the same industry.

The more questions you answer, the more you become recognized as an expert in the LinkedIn community, and that leads to more opportunities for you.

Help a Reader: What to Charge as a Babysitter

2009-07-08T05:29:00-04:00

Here's a question left recently by a reader on an older post of mine:

My neighbor wants me to start babysitting her nine month old. She works unusual hours: Monday - Friday he'd be at my house 6am - 1 pm and then 2pm - 8pm. and then 10 hours on Saturday. Is 90$ a week fair? I'm 16 by the way, but I don't just sit the kid in front of the TV; we read books, go to the park, take walks, or paint. I give him all three meals, snacks, give him a bath, and put him to bed.

Do the math. It's 13 hours a day for five days a week -- plus 10 hours on Saturday -- 75 hours in total each week. $90 seems to be waaaaaay low. Do you agree? What do you think is the right amount for her to charge?

Help a Reader: Buying Gold Coins

2009-07-07T15:45:00-04:00

Here's a question I recently received from a reader:

I'm a young professional doing pretty good. I'm 26 and still single and my only debt is about 1000 grand of student loan. Anyways, I am trying to start my life right and do everything right.

My question is I want to buy some gold coins. I don't know if you ever bought some before. If so, can tell me where you bought it from so I can buy it from the same reputable source.

A few comments:

1. I'm sure he doesn't mean that his debt is "1000 grand." I'm assuming it's either $1,000 or $10,000 since he sounds like it isn't much.

2. I told him that I have never bought gold coins.

3. I'm sure many of you can advise on where/how to buy gold coins as well as the potential pros and cons of doing so. Have at it.

Great Deal -- Hurry!!!

2009-07-07T13:26:41-04:00

Just saw this offer on the sidebar of my blog -- in the Amazon widget. It's a great deal on a ladies watch -- usually almost $700 and now only just over $100! The details are here:

Invicta Women's Wildflower Diamond Watch #5058

Obviously this isn't a watch blog so I can't speak to the value of this piece (though the reviews of it look great), but it is a GREAT deal (my specialty!), so I thought I'd call your attention to it in case anyone was interested. The offer only lasts another 40 minutes or so (I think), so you'll need to hurry if you want one.

How You Grow Your Income by 10% or More a Year

2009-07-07T11:15:00-04:00

In my post titled Maximizing Your Greatest Asset: Why Your Career is So Important, I reviewed some scenarios where a person increased his salary 3%, 5%, 7.5%, and 10%. In posts like this I often get a comment along the lines of, "These percentages are not realistic. No one today earns 10% salary increases every year."

Maybe, maybe not. But I never said that a person who averages 10% salary increases a year would have a salary increase of 10% every year. If this did happen, it would be quite unusual. Instead, what happens most often (in my experience) with salary increases is that in some years they are small and some years they are large. In the end, you get a decent average return if you can maximize the number of good years as well as the size of the increases. In other words, the growth is not a straight line, but goes up and down year-to-year, like the performance of an investment (good in some years, not so good in others). In the end, you get a decent average if you can manage your salary well. (FYI, I use a straight percentage in the article highlighted above as well as others for simplicity, but it is meant to reflect a real-world average gained by these ups and downs as I just described.)

Here's an example of how a fictional person was able to grow his salary by an average of 10% during a 10-year period:

Hired at $20,000 per year.
After year 1, he's given a 3% standard increase.
After year 2, he gets promoted to the next highest level and receives a 15% pay increase.
After year 3, he performs well and receives a 5% pay increase.
After year 4, he leaves his job for a promotion with a new company. He receives a 20% pay increase.
After year 5, he's given a 3% standard increase.
After year 6, he's promoted again and earns an 8% pay increase.
After year 7, he leaves his job for a promotion with a new company. He receives a 20% pay increase.
After year 8, he's given a 3% standard increase.
After year 9, he's promoted again and earns a 12% pay increase.
After year 10, he's moved to a new division, given more responsibility, and earns a 13% pay increase.

In the end, these increases average out to just over 10% a year and makes just under $52,000 annually. I know it's not a perfect example (for instance, I didn't factor in bonuses, stock options, and other perks), but I think it illustrates the point.

A few extra comments:

1. Note how he has to regularly get promoted and/or move to a new job at a new company to get the biggest pay increases. How does he do this? He knows the expectations and overdelivers. BTW, changing companies and getting promoted are where my biggest jumps in pay have occurred as well.

2. In some years, he simply gets a paltry increase. It's ok for this to happen now and again, but you can't expect to earn the big increases staying in the same position at the same company. It just doesn't work that way.

3. If he'd only averaged 3% increases a year, he would have been earning just under $27,000 in ten years. At 5%, he'd be at almost $33,000. Big difference, huh? This is why I'm constantly beating the "make the most of your career" drum. The gap between a 3% annual increase and a 10% annual increase is HUGE!

4. Think results like these can't be accomplished? Think again. Here's the real-life details on how I've grown my income.

Top Ten Mistakes Candidates Make in an Initial Interview

2009-07-07T05:29:00-04:00

The following is excerpted with permission from Acing the Interview: How to Ask and Answer the Questions That Will Get You the Job by Tony Beshara (AMACOM 2008).

Top ten mistakes candidates make in an initial interview:

1. They forget that this is a selling situation… and don’t ask for the job. A candidate’s objective in an initial interview is to sell what he or she can do for the prospective employer. He or she is so unique and so valuable over and above every other candidate, he or she need to be hired.

2. They think that interviewing is a “two-way street.” An initial interview is a “one-way street.” A candidate has to prove him- or herself superior to all of the other candidates before getting to an “equal” exchange with a potential employer.

3. They focus on what they want in a job. If candidates give the hiring authority good enough reasons why they ought to be hired, a hiring authority can give them plenty of reasons why they ought to go work there.

4. They don’t know what they’re really selling to an employer. Many candidates forget to sell specific features, advantages, and benefits that they can provide the employer.

5. They cannot articulate or “bridge” their specific abilities for the employer. Most candidates “know” they’re good, but they don’t know how to articulate their advantages. This takes practice and doesn’t come naturally.

6. They have poor communication skills. Candidates must practice looking people in the eye and communicating clearly and concisely what they can do for a company that nobody else can.

7. Improper or poor dress and/or body language is unprofessional in the interview. Candidates should dress professionally and be relaxed, yet serious in their body language.

8. They don’t research the company or the position they are interviewing for. The people who are getting the jobs usually know more about the company and the people they are interviewing with.

9. They are unable to articulate what they would like in a new job or company. Candidates must be able to articulate their professional goals, what they are striving for personally and professionally.

10. They badmouth their present employer. Most candidates don’t recognize that employers identify with employers. Your past and present employers have to appear positive.

-----------------------------------------------
Good stuff here (and in this book overall) IMO. I've had a lot to say about interviewing as well, and if you want more information check out these posts:

Help a Reader: Me Again

2009-07-06T15:45:00-04:00

Ok, I need some help again. We've decided that we're getting a new (bigger) TV. It's been about 15 years since we purchased our last one, so it's time for an upgrade. We've done our research (both with Consumer reports as well as looking at options in stores) and there seems to be a TON of conflicting information/opinions our there. I know I'll probably get the same here, but I thought it at least worth a shot to hear what you all had to say on the subject. So here are some thoughts/questions to get you going:

Do the newest (120 Hz) LCDs have the "motion blur" that LCDs are "known for"? We watch sports and play video games on our TV and don't want any sort of blur. We've been told (and read) that these LCDs do (some say) and do not (others say) have motion blur. What's the truth?
Do plasmas have "burn in" at all or is this something that also used to happen but doesn't any longer? Is plasma going to be around in five years? Seems like LCDs are killing plasma.
How important is 1080p versus 720p? Anyone really notice a difference in these two?
Size? We're looking between 40 and 50 inches (a big gap, I know). Any pros or cons to any of these?
Brands? We've been told (and read) that Sony, Samsung, Toshiba and Panasonic seem to be winners. True?
Where to buy? Options, options, options...
What accessories do we need? Surge protector, etc.?
Should we wait for technology? Is there anything breaking that we'll really need/want and thus should wait for? For example, TVs seem to be moving towards better/easier web connectivity. Is this something we will want? Is it coming soon?

Answers to these and any other thoughts you may have on the issue would be very much appreciated.

My Jobs, College

2009-07-06T11:15:00-04:00

The other day I listed all the jobs I held in high school and detailed what I learned from them. Today I want to continue this series by sharing the jobs I held while in college.

As a freshman, I worked in the library as part of a work-study program. It was a simple job and for only eight hours a week. I didn't get any lasting impressions/benefits from it, though it was the first job where I got paid for using more brains than brawn.

The next three years, I worked as a staff assistant, a scholastic-based assistantship, in the alumni office for an average of 15 hours a week. This was one of my "break-through" jobs because it taught me so much. For instance, I:

Discovered that good performance gets rewarded. I was only eligible for this position because I had high grades my first semester as a freshman, which was enough to get me considered for this spot.
Learned that who you know can account for as much as what you've done. The head of the office had once been in the fraternity that I had just joined. We were "brothers", so I gained an advantage over the other candidates.
Luck plays a huge role in job success. It just so happened that there last staff assistant was graduating and they wanted to hire one person that would work with them for several years (versus getting a new person every year.) I just so happened to have three years of eligibility left, something the other candidates did not.
Sometimes you get pleasantly surprised. The alumni director, despite the fact that he was a "brother", was a bit difficult for most people to get along with. He was outwardly gruff and strange in many of his personal habits. But somehow we hit it off and I found out he had been a successful sales and marketing executive for a Fortune 500 company. I learned so much working for him for three years -- it was probably more valuable than my college education. He also introduced me to what eventually became my profession (marketing), altered the course of my career, and was probably one of the most influential people in my life.
Learned how to become a leader and do the "impossible." I went to a small, private college that relied heavily on alumni contributions, and that's what the office did -- get alumni to give to the college. My job was to get extra money from the STUDENTS! Yikes! Poor, struggling students! Yet under the direction of my mentor, I was able to think past the "impossible", develop a workable plan, and execute the plan with success. A year after I started we had a new intercom system in our student center paid for by extra donations from students. Accomplishing this feat opened my mind to the fact that difficult obstacles can often be overcome, a lesson that has served me well throughout my career.

In the summers I worked at the same grocery store that I talked about the other day, so there's nothing new to add there.

During my junior year in school, I took an internship with a local lawyer. I worked eight hours a week in his office, mostly looking up old law cases that he could use for trials/arguments and writing up a summary of them. I learned one HUGE lesson from this job: I hated what lawyers did (for the most part). This was vital because up to that time I had planned on going to law school. But after this I switched directions and with the help of the alumni director got turned on to marketing -- which has been a perfect career for me. This is one reason I'm such a supporter of internships -- they not only give you some good experience that you can put on your resume, but they also let you discover whether or not you really like the field you're working in. For a 20-year-old, those are two GIGANTIC benefits!

The one other job I held while in college was that I spent the summer of my junior year (I would be a senior that fall) in Washington, DC working for the federal government (executive branch) as an intern. It was a very enlightening experience and I got the following from it:

You can get paid a decent salary working for the government for not doing much.
It's REALLY who you know not what you know when it comes to working for the government.
I never wanted to work for the government in my life.
I liked DC a lot. Great place to visit (I lived in the city and rode the Metro everywhere) but I wouldn't want to live there.
You can get by on virtually nothing when you're young. I ate hot dogs and beans and lived much of the time in a youth hostel. I banked most of my salary. It was a wonderful thing.

Well, that's it for this round. Next in the series we'll cover the jobs I held while in graduate school.

Best of Money Carnival #6

2009-07-06T10:45:00-04:00

Just wanted to let you all know that the Best of Money Carnival is up this morning at Bible Money Matters. It includes the top ten personal finance posts of the past week -- great reading for those of you looking for "the best of the best."

Congrats to all participants and especially the winning post, Powerful Ways to Improve Your Life.

Do You Dread Mondays?

2009-07-06T06:55:00-04:00

I remember the feeling all too well. Sunday around 6 pm or so the dread would start creeping in -- only a few hours left before I went to bed and another work week started the next morning. It was a feeling of impending doom, that I'd be forced into five days (at least) of battles, pressures, fights, political maneuvers, and so on working at a place I didn't like in a job I disliked with people who didn't care. Ugh.

Ok, so maybe that's the appropriate description for the worst job I ever had, but I dreaded Mondays for many, many years of my career. Only a couple of jobs in my career have afforded me the luxury of enjoying Sunday nights (and Monday mornings as well). Thankfully, one of them is the job I currently hold.

Do you know the feeling -- hating Mondays because you're in a job/company that you dislike? Or are you as happy as a lark, enjoying what you do for a living?

I thought this would be an interesting question for an early Monday-morning after a holiday weekend post. :-)

What Christians Believe about Giving

2009-07-05T06:05:00-04:00

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

This piece on the relationship between the welfare state and Christianity contains some good stats on what Christians believe about giving. Here are some highlights:

In the study, 56 percent of all clergy say Christians are under a biblical mandate to tithe 10 percent of their income to the local church, while another 12 percent feel Christians are under this 10 percent mandate, but the gifts do not necessarily have to go to the local church.

Twenty percent believe there is a biblical mandate to give, but not any specific amount or percentage.

However, among the people who attend Protestant churches, only 36 percent feel there is a biblical command to tithe 10 percent to their local church, while another 23 percent believe there is a biblical mandate to tithe, but not necessarily to the local church.

Twenty-seven percent feel the Bible commands Christians to give, but not a set proportion or amount, while 10 percent believe Christians are under no mandate to give anything.

Very interesting indeed. Here's what I get out of these findings:

66% of clergy think that Christians are commanded by Scripture to tithe while 20% believe in what I call "generous giving." Does this mean that 14% believe that Christians shouldn't give anything?
59% of Christians (church members) think tithing is scriptural, though a greater percentage thinks it doesn't have to be to the church. Unfortunately, the study doesn't tell us what percentage believes in "giving generously" and what percentage doesn't believe in giving at all, so we're at a loss there. But we can say that a majority of Protestant church-goers believe in tithing over generous giving, a finding I found to be stunning based on how many actually tithe. More on that later.

Now on to the ever-popular "gross versus net" discussion:

Among people who do believe in tithing (whether to the local church specifically or to any type of organization), an ongoing debate is whether the 10 percent should be figured on gross income or on net income (after taxes).

Churchgoers who believe in tithing are equally split over this: Forty-eight percent believe the tithe should be figured on net income while fifty-two percent say it should be on gross income.

The snarky response is "do you want God to bless your gross income or your net income?", but to me the best argument for tithing on your gross income is from Proverbs 3:9-10 where it says:

Honor the LORD with your wealth, with the firstfruits of all your crops; then your barns will be filled to overflowing, and your vats will brim over with new wine.

"Firstfruits" means "before anything else" which includes taxes. Thus the tithe comes off the gross. Tithing on net income advocates say that many of the services the tithe was meant to pay for is now covered by our taxes, so we should tithe after taxes are deducted from our income. I'm not buying that argument.

So now that we've covered what Christians BELIEVE about tithing and giving generously, let's look at what the DO:

In a 2003 study, researchers discovered that the number of Americans who give ten percent of their income to the church "dropped by 62 percent in the past year, from 8 percent in 2001 to just 3 percent of adults during 2002," the Barna Research Group said.

And Roman Catholics were even worse than their Protestant brethren. Of Catholic respondents, none reported giving 10 percent of last year's (2002) income to his or her church.

Barna, study revealed that among born-again adults, 14 percent reported tithing in 2001, but only 6 percent said they did so in 2002. Among evangelicals, nearly 9 percent of those surveyed reported tithing.

A couple thoughts:

Yikes!
BIG gap between what people believe and what they do. I guess I shouldn't be surprised, that's how people act with their money in many different areas -- saving, spending, investing, etc. -- they know what they should do with it and yet they do the opposite (in many cases.) Reminds me of Romans 7:15:

I do not understand what I do. For what I want to do I do not do, but what I hate I do.

Happy Fourth of July

2009-07-04T06:08:00-04:00

Just want to say a big happy Fourth of July to all of you out there -- and Happy Birthday to America! I hope you're having a great day (like I am) celebrating the freedom we enjoy in the U.S.

Taking the Day Off

2009-07-03T05:29:00-04:00

Like many of you readers, I'm sure, I'm taking the day off today and enjoying it with my family. I hope you all have a GREAT holiday weekend!!!

Star Money Articles and Carnivals for the Week of June 29

2009-07-03T05:19:00-04:00

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter. For now, here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

This week's Best of Money Carnival was won by the post Identify & Overcome Money Anxiety & Stress in Relationships.
EDITOR'S CHOICE! Money Hacks Carnival - Buy High, Sell Low: The Basic Instinct Driven Error of Investing
EDITOR'S CHOICE! Carnival of Top PF Posts - The Best Way to Maximize Your Investment Return
Financial Highway gives some honeymoon planning tips.
Steadfast Finances talks about the pros and cons of investing in ETFs.
Debt Free Adventure says to follow through on financial goals.
The Quicken Blog tells how to quit your job and travel the world.
Free from Broke asks if you keep money secrets from your spouse.
Festival of Frugality - Do You Fly or Drive on Summer Vacation?
Carnival of Debt Reduction - Managing Student Loans: 5 Ways to Make Repayment Less Painful
Carnival of Money Stories - Another Good Experience
Carnival of Pecuniary Delights - Interview Lessons from a Video Contest

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Safeguard 8: Avoid an Advisor with a Lavish Lifestyle

2009-07-02T15:45:00-04:00

The following is a guest post from Marotta Wealth Management. After reading this, you may want to check out my thoughts on how to pick a financial planner.

There will always be swindlers masquerading as investment advisors. You can learn to recognize such people by their over-the-top lifestyle. Avoid them at all costs.

The differences between the manager of a Ponzi scheme and a model citizen are almost imperceptible, which is not surprising. Those who would perpetrate a Ponzi scheme are usually not the demons everyone makes them out to be. And they are obsessed with appearing successful.

This fixation on appearances, however, is the red flag. If you are the millionaire next door, you know that frugality is one of the marks of an effective financial advisor.

But you may have to train your eye to recognize an immoderate lifestyle. If someone in business is worth $300 an hour, some apparent extravagances may in reality be productivity gains.

For example, if you hire a chauffeur to drive you to and from work each day so you can be productive, society gains. If you hire a gardener so you can continue contributing in your area of expertise, society gains. And if you hire a butler or a chef, so long as you employ someone else for less than $300 an hour, society gains.

Productivity gains are not synonymous with a lavish lifestyle, and with some careful observation you can learn to discern the difference. Productivity gains are all about function, and if you discover them you will find out accidentally. In contrast, the whole purpose of an extravagant lifestyle is to be noticed.

Consider Bernie Madoff. He and his wife lived in a $7M penthouse apartment in New York City and a house worth $3 million in the Hamptons. They also owned a $9.3 million Palm Beach mansion. Plus they maintained a $1M million chalet and two boats on the French Riviera.

They spent an average of $100,000 monthly on the corporate credit card on chartered jets, limousines, top hotels, fine wines, world travel and shopping. When they drove themselves, they rode in style in a BMW and or one of two Mercedes. Madoff bought a vintage Aston-Martin for his brother as a company car. The couple owned a Steinway concert grand piano worth $39,000. Madoff purchased tickets at the Mets Citi Field at $40,000 a season.

Madoff was also a prominent philanthropist, but his interests were anything but altruistic. He started the Madoff Family Foundation and gave to charities, which in turn invited him to serve on their boards. Madoff then invited them to invest their endowments.

He and his wife also gave more than $200,000 to the Democratic Party. He gained high-level connections to those in Congress who write the laws and are supposed to provide regulatory oversight. Madoff was one of the first to exploit kickbacks for brokerage order flows. He argued they should remain legal and not alter the price that customers received. His connections prevailed.

The Madoffs themselves owned $62 million in securities and $45 million in municipal bonds. They loaned their sons $22 million and $9 million, respectively. Oddly enough, having siphoned billions, the couple only has a net worth of about $823 million.

Wealth is what you save, not what you spend. That's why an ostentatious and excessive lifestyle is a red flag for an investment advisor. The middle class buys liabilities like boats and cars. The rich buy investments. If Bernie Madoff had bought businesses and investments, he would be able to make restitution of those initial investments. He might even be able to pay a fraction of the gains he claimed to have.

We all wonder what happened to the $65 billion. Much of it was phantom gains, and a lot of it was simply spent a million here and a million there. Excessive spending is a warning sign that your advisor doesn't understand wealth building personally.

In April this year, the Securities and Exchange Commission (SEC) charged Shawn Merriman of Aurora, Colorado, of collecting $20 million in a Ponzi scheme "to support his lavish lifestyle." He lied to investors, reporting "impressive and consistent annual returns" as high as 20%.

Merriman was known for showcasing his high-end art collection. U.S. marshals seized hundreds of works of art including some by Rembrandt and Picasso from his sprawling three-story home. Also seized were a silver Aston Martin, 1932 and 1936 Auburns and a 1932 Ford Highboy.

This spring the SEC also filed charges against Pennsylvania advisor Tony Young for allegedly stealing $23 million from investors to "support a lavish lifestyle for his family, including payments for expenses related to horse ownership and racing, construction, boats, limousines, chartered aircraft and other luxuries." That lifestyle included an opulent vacation home in Palm Beach, Florida, near the Madoffs' vacation home. Young also lied to accountants who prepared statements and claimed his losses in 2008 were only 5.8%.

Ponzi schemes are often discovered after market downturns when investors make the mistake of fleeing to safety. They want to take their stellar returns and put the money someplace safe while the storm blows over, only to find that no money is really there.

Additionally, the news cycle runs in themes. After the Madoff scandal, every Ponzi scheme became national news. The theme, played over and over, is that all financial services, from Fannie Mae to AIG, are rife with corruption and mismanagement and need more government regulation.

But more control won't protect you from dishonesty. More law can't protect you from an unethical person. Fannie Mae and Freddie Mac had direct congressional oversight. Madoff was good friends with the regulators. Regulation is more likely to be used politically than responsibly.

Your best defense is to engage an advisor whose daily practices reflect ways to safeguard the money under his or her fiduciary care. As part of identifying such an advisor, make sure there is a mutual understanding that an ostentatious lifestyle is not a valid financial goal.

Ten Pricey Cities that Pay Off

2009-07-02T11:15:00-04:00

I've gone on record saying that one great money-saving tip is to consider moving to a less expensive city (and I've documented that the reduction in costs more than outweighs the usual loss in salary). Most people hate this advice, but that doesn't stop me since I'm a glutton for punishment. ;-)

But today we're covering the other side of the issue and listing the ten cities, though they are expensive, that are "worth it" (at least according to this US News piece) because they offer "amenity value." The details:

Economists look at every asset as having an "amenity value," which measures the amount of satisfaction the asset brings to its owner. For example, your home has an asset value that is worth much more than the roof it puts over your head. The land where you live brings with it a certain quality of life: How nice is the weather where you live? How close are you to the coast? How many cultural and recreational opportunities are nearby? These quality-of-life factors contribute heavily to the amenity value of a city, and they help explain why housing costs are so high in some places.

Another big component of a city's amenity value—trade productivity—is essentially, how many goods does the city produce that other people value? The San Francisco area has Silicon Valley. New York has Wall Street. But productivity boosters can come in other forms, such as universities that produce an educated workforce, easy access to water or other transportation, or proximity to natural resources. How do these factors create amenities? Residents of highly trade-productive cities tend to enjoy higher wages. What's more, businesses flock to these cities to enjoy the advantages. As incomes and employment go up, so do housing costs.

Given this, here are the top ten pricey but worth the price cities from US News (in alphabetical order -- they didn't rank them):

Boston
Honolulu
Los Angeles
Naples, Fla.
New York
Salinas, Calif.
San Diego
San Francisco
San Luis Obispo, Calif.
Santa Barbara, Calif.

A few comments from me on this info:

1. For those of you advocating living in an expensive city, this piece does a good job of detailing what many of you have already said.

2. Good weather seems to count for a lot in this analysis.

3. They often cite "higher incomes", but we've already shown that the costs of living in these cities is much more than the income increase versus other alternatives, so on purely economic terms there isn't a rationale for more expensive cities. What they're saying here is this equation makes these places worth the price: Higher incomes + amenity value > cost of living.

4. To me, amenity value as they define it isn't worth much. As long as I have either access to the things a big city brings or something that's "good enough", I'm fine with it. We have Chicago three hours away and Detroit two hours away, plus we have decent enough museums, botanical gardens, etc. No, they're not the Met, but they are good enough for what we want. As such, the equation for me now shifts to this: Higher incomes < cost of living. Now you get a sense of why my point-of-view is what it is. That, and I'm cheap.

5. Different people value different things. For instance, I prefer wide open spaces such as green fields, gardens, etc. over concrete and metal, places where your neighbors aren't on top of you, areas where your kids can run the neighborhood without the fear that they'll get lost or kidnapped, spots where the pace of life is slower, etc. This moves my equation even more away from larger cities.

6. Just because you live in a less expensive city doesn't meant you HAVE to earn a lower salary. I'm sure I couldn't make much (if any) more than I make now even if I lived in New York City, San Francisco, or any other costly place. And I've done pretty well despite living in less expensive cities all my life.

7. One thing the analysis doesn't take into account is the value of having family nearby. This is one of the most-cited reasons for living in an expensive city by the commenters here. Having family around not only contributes to the quality of life, but can save you money as well (by providing daycare, for instance.)

8. Of course you can spend your money however you like, so don't take these thoughts as condemning anyone for their lifestyle decisions. I'm simply pointing out an alternative way of thinking about decisions we make that impact our finances in a big way.